"Non-Market Failure"

In addition to responding to market failures, the public sector is called upon to resolve other kinds of economic problems. For example, even when the market operates efficiently, there are often huge disparities in the distribution of wealth and income in the United States. While many people believe this is an appropriate outcome that ought to be left to the private sector and competition, the majority of Americans believe it is appropriate for the government to redistribute income and wealth to level out some of these differences. In fact, some of the largest government programs in existence are income redistribution programs, such as Social Security, low-income health care, and welfare programs. These programs are paid for by the wealthy to benefit the poor. There are numerous private sector charities and religious organizations that also work to help the poor and the needy. While public sector involvement clearly provides important benefits to millions of Americans, some critics have argued that the private sector could take care of people more effectively and compassionately. Private charities, for example, are free to help people spiritually, culturally, and socially, not just financially, as are government agencies and programs. However, when the public sector is funded by trillions of dollars in taxes, individuals have much less money available to give to private sector organizations.

The private/public balance is a difficult one to strike. It is a classic example of the fundamental struggle between liberty and order in American political history. Economic efficiency and desirable social outcomes are not always synonymous. By maximizing liberty and leaving economic outcomes to the private sector and the free market economy, inequalities are bound to exist. In the strictest sense, these outcomes may be very efficient. Private sector outcomes, by definition, are almost always more efficient than public sector outcomes. However, when economic inequalities are extreme, many people believe they should be minimized by the public sector, even when government intervention might lead to some inefficiency. Government welfare programs that provide support for low-income individuals and families might not be economically efficient, but they are said to promote economic equality. In support of such policies, proponents often speak of providing an economic safety net, or of making sure that all families can live above a basic standard of living “floor.” Some people believe that these policies are unfair because they deprive wealthy taxpayers of the money they have earned through their hard work and good fortune. Others maintain that those who are wealthy are wealthy at least in part because they live in a free society which allowed them to pursue their wealth, and that one of the “costs” of obtaining wealth should be supporting the society in which they live by paying taxes.

An even more controversial balancing act between private and public action centers on the regulation of private economic transactions that are deemed harmful to individuals or to society. For example, illicit drugs and prostitution are prohibited. Selling alcohol or cigarettes to adults is permissible, but selling the same products to minors is not. Economic freedoms are limited in other ways that protect the economic interests of others. It is illegal, for example, to operate a motor vehicle without liability insurance. Employers are required to meet safety requirements for their employees. While most people accept such laws as reasonable limits on their freedom, some people believe that placing such restrictions on individual behavior is an example of the public sector (the government) overstepping its bounds.

As you participate in the American political and economic systems, you should pay careful attention to the balance between the private and public sectors. You should also be aware of the kinds of limits that are placed on your freedoms and the reasons behind those limits. When freedoms are limited more than you think they should be, it is your duty to speak up and make your voice heard in the political process.